Endogenous Repo Cycles

31 Pages Posted: 21 Feb 2019

See all articles by Vyacheslav Arbuzov

Vyacheslav Arbuzov

University of Rochester

Yu Awaya

University of Rochester

Hiroki Fukai

Chukyo University

Makoto Watanabe

VU University Amsterdam, Tinbergen Institute

Multiple version iconThere are 3 versions of this paper

Date Written: 2019

Abstract

This paper presents a simple and tractable equilibrium model of repos, where collateralized credit emerges under limited commitment. We show that even if there is no time variation in fundamentals, repo markets can fluctuate endogenously over time. In our theory, repo market fragilities are associated with endogenous fluctuations in trade probabilities, collateral values, and debt limits. We show that the collateral premium of a durable asset will become the lowest right before a recession and the highest right after the recession, and that secured credit is acyclical.

Keywords: collateral, search, endogenous credit market fluctuations

JEL Classification: E300, E500, C730

Suggested Citation

Arbuzov, Vyacheslav and Awaya, Yu and Fukai, Hiroki and Watanabe, Makoto, Endogenous Repo Cycles (2019). CESifo Working Paper No. 7518, Available at SSRN: https://ssrn.com/abstract=3338925 or http://dx.doi.org/10.2139/ssrn.3338925

Vyacheslav Arbuzov (Contact Author)

University of Rochester ( email )

300 Crittenden Blvd.
Rochester, NY 14627
United States

Yu Awaya

University of Rochester ( email )

280 Hutchison Road
Rochester, NY 14627
United States

Hiroki Fukai

Chukyo University ( email )

101-2 Yagoto Honmachi
Showa-ku
Nagoya-shi, Aichi-ken, 466-8666
United States

Makoto Watanabe

VU University Amsterdam, Tinbergen Institute ( email )

De Boelelaan 1105,
Amsterdam, North Holland 1081 HV
Netherlands
+31 20 5986030 (Phone)

HOME PAGE: http://makoto.wtnb.googlepages.com

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